Biggs: Social Security Shortfall Not Just Pessimism

August 29, 2002

The Economic Policy Institute's Christian Weller contributed a letter to The Washington Post downplaying Social Security's financing problems. Weller's letter follows:

Dire predictions about a Social Security shortfall are unduly pessimistic and are based on unrealistically low productivity figures. The long-term growth rate for productivity is about 2 percent per year. Instead, Social Security's trustees assume a productivity rate of 1.6 percent. Over 75 years, this seemingly small difference can have a substantial effect. For example, an alternative scenario (created by the trustees) assumes a higher productivity growth rate of 1.9 percent, among other things, and, voilà, Social Security never runs out of funds.

In the pessimistic scenario, a funding shortfall of about one-third of promised benefits arises after 2042, which can be financed by raising or eliminating the cap above which earnings are not subject to Social Security taxes (currently $84,900). Because of the cap, only 84 percent of earnings that could be taxed are actually taxed. Raising the cap, so that 96 percent of earnings will be taxed and benefits increase accordingly, would cover any anticipated shortfall. This would make the system more fair and allow Social Security to raise benefits if the future turns out to be less dire than the trustees want us to believe.

Social Security Analyst Andrew Biggs responds to Weller's criticism.

Christian Weller argues that Social Security's projected deficits result from pessimistic economic projections by the program's trustees. If we assume "a higher productivity growth rate of 1.9 percent, among other things," Weller says, "voila, Social Security never runs out of funds."

However, the "among other things" Weller leaves unmentioned include higher birth rates, reduced improvements in life expectancies, lower unemployment, higher inflation, higher interest rates, a one-third increase in immigration, and lower incidence of disability. Voila, indeed.

Even under this optimistic scenario, Social Security still runs payroll tax deficits beginning in 2021 (rather than 2017 under the trustees' intermediate projections). While the trust fund would hold bonds sufficient to remain solvent until 2075 - not forever, as Weller claims - we must still raise taxes or cut other spending to repay these bonds as Social Security redeems them.

Two independent analyses have found the trustees' projections to be reasonable. Rather than sticking their heads in the sand, responsible citizens and policymakers should put forward proposals to address Social Security's financing problems.

For more information see Andrew Biggs' study, "Social Security: Is It a Crisis that Doesn't Exist?"

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